Evaluating CFO Career Trends Requires Long View

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In today’s acutely dynamic world, there’s an unfortunate tendency to fixate on tracking the instant increments of change, and the reasons therefor, with less consideration for long-evolving trends that may shed light on the present.

At the end of 2014 there were 62 women holding CFO posts at Fortune 500 companies, while at year-end 2015 there were 69. It may be temptingly easy to chalk up the increase to a random statistical happenstance. After all, that’s a gain of just seven positions, or 1.4%, whereas 14.6% of the 500 companies — 73 of them — switched CFOs.

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Yet, as shown in executive recruiting firm Spencer Stuart’s 10th annual Fortune 500 CFO Index, the number of women finance chiefs in the group has more than doubled in the past decade, from 6.8% of the total to 13.8%. Each year except two there were more women than the previous year, and in one of those instances the number held steady.

This year’s increase is anything but a random statistical event, and it’s hard to imagine that the trend won’t continue. The same is true for racially diverse CFOs, a group that has climbed steadily from 3.3% of the Fortune 500 in 2006 to 6.0% last year.

“The biggest takeaway from our study is that the number of female and diverse CFOs is tracking up, and I anticipate that’s going to continue,” says Joel von Ranson, leader of Spencer Stuart’s financial officer practice in North America. “It’s been a slow climb, but I’ve seen the next generation of talent, and it’s more diverse.”

On Jan. 30, Securities and Exchange Commission chair Mary Jo White said her staff is reviewing the commission’s current rules for disclosing boardroom diversity, which may lead to new guidelines. Currently public companies must disclose whether they consider diversity in filling board seats, and if they do, they must also say how they implement the policy and how they evaluate whether it’s working.

It’s anyone’s guess what new rules would look like, but there is vast potential for change. For example, Fortune reported, one petition to the SEC last year called for requiring companies to disclose the gender, race, and ethnicity of each nominee for a board seat.

Von Ranson suggested that the spotlight on board compensation could accelerate the existing trend toward diversity in upper management ranks. “It’s being discussed, it might well become even more prominent, and I think that’s very positive for the finance function,” he says.

Another long-developing trend is investment bankers being tapped for corporate CFO jobs. At the end of 2015, only 6.8% of Fortune 500 finance chiefs were former investment bankers, but that was double the 3.3% level in 2006, and it looks inevitable that there will be still more of them as time passes.

“The supply of experienced, strategic CFOs is limited,” von Ranson says. “For one thing, there is evidence that more of them are retiring earlier. But activist investors are pushing companies to hire CFOs who will be great at things like investor relations and evaluating M&A, and investment bankers are seen as having those strengths.”

For the same reason, there’s been a long, steady increase in the hiring of CFOs with CFO experience as opposed to those stepping up from other roles, although the limited supply restrains that trend. In 2015, 29% of CFOs hired by Fortune 500 companies had prior CFO experience, up from 23% a decade earlier.

However, among those brought in from outside the company, as opposed to promoted from within, the increase has been steep. Whereas in 2006 a quarter of such appointments were people who’d been finance chiefs previously, that proportion grew to about half by 2015.

Over the study’s 10-year history, 61% of open CFO positions have been filled internally. “Public companies are getting better at developing internal successors,” says von Ranson, whose business would be better off if that number were lower. “Boards are getting more vigilant on succession and encouraging management teams to groom internal successors.”

Meanwhile, the study provides some insight for those who want to embark on a CFO career. To get promoted internally, you’re best off being a controller or chief accounting officer. To leave your current company for a finance-chief opportunity at another one, holding a divisional finance leadership position is best.

“Controllers sometimes lead not only accounting and controls but also planning and budgeting, and maybe tax,” von Ranson says. “It’s a broad job description in many cases, and colleagues see that person as a broad-based leader. But from the outside, he or she might be seen as more of a strictly technical person.”